Cloud Stocks Slip as Datadog Lowers Revenue Guidance
Cloud stocks are declining on Tuesday after Datadog, one of the leading companies in the industry, revised down its full-year revenue forecast due to cost-saving measures adopted by organizations.
Impact on Cloud-Oriented ETF
The WisdomTree Cloud Computing Fund, an exchange-traded fund focused on cloud companies, experienced a 3% drop in its value for the day. This decline marks the fifth day of losses in the past six trading sessions.
Reasons for the Decline
Cloud-computing companies initially witnessed increased demand as the COVID-19 pandemic forced businesses, governments, and educational institutions to utilize more cloud services for remote work. However, the rise in inflation and interest rates prompted investors to shift from high-growth cloud stocks to safer investments.
Furthermore, certain sectors like real estate began to struggle due to higher interest rates, leading companies to cut costs on cloud infrastructure and other technology. Many cloud companies responded by reducing overhead and implementing layoffs.
Additionally, the emergence of generative artificial intelligence services, such as OpenAI’s ChatGPT chatbot, sparked investor interest in adopting similar technologies and additional tools to facilitate the transition. This resulted in a rebound for cloud stocks, although some, including Datadog, have not yet surpassed their record highs from 2021.
Datadog’s Revenue Guidance
Datadog reported a year-over-year revenue growth of nearly 83% in the first quarter of 2022. However, the company lowered its full-year revenue expectations to a range of $2.05 billion to $2.06 billion, down from $2.08 billion to $2.10 billion. This implies a projected fourth-quarter revenue growth of only 15%, compared to the previous forecast of nearly 23%. Analysts had anticipated $2.081 billion in revenue for the full year.
According to Datadog’s CEO, Olivier Pomel, the company witnessed lower usage growth from existing customers and increased scrutiny of costs from larger spending customers.
Analysts’ Perspectives on Datadog
Bernstein Research analysts, who have a buy rating on Datadog stock, acknowledged that the company’s growth has been a key factor in its attractiveness. They believe that growth will resume as enterprise spending budgets recover and venture capitalists start investing more heavily in startups again.
Performance of Other Cloud Stocks
Several other cloud stocks, including Everbridge, RingCentral, Enfusion, Snowflake, Monday.com, Domo, SentinelOne, Smartsheet, Elastic, Zscaler, and GitLab, also experienced declines ranging from 5% to 23% in Tuesday’s trading session.
Watch: Cramer’s Mad Dash on Datadog: The market has no appetite for a company like that
